Government stimulus creates prolonged inefficiencies
Government stimulus may seem to be the economic savor of a lifetime for the short term but over the longer horizon government stimulus is often overdone and creates huge inefficiencies in a post-stimulus economy.
Case in point:
When Obama’s stimulus package comes through its going to create a huge new program to get alternative energy moving forward. While this is clearly economically beneficial in the short run of 10 years, the long term effects might not be so positive.
Solar panels require an incredible amount of silicon. Silicon is used to create computer chips and the solar collectors on solar power plants. All of this silicon will have to be purchased from the various companies that harvest, clean and distribute silicon to buyers.
To produce all of this much in demand silicon producers will have to hire new specialists, tune up their factories for all out production and make investments in new areas to find silicon. All of this will require huge upfront investments that will have to be paid off over years. Many companies may have to reinvest virtually everything to get this silicon, if it doesn’t pay off they could be caught holding the bag.
Next point:
A heavy emphasis on more teachers will create more teachers. In my local area one particular college pumps out qualified teachers by the dozen and as such the respective earnings for teachers in the area are terrible. The base salary is less than $30,000 per year. Ouch.
When Obama steps in to step up the pay for teachers one can be sure that the number of students changing majors or deciding to be teachers will ultimately go up. But there is a problem here, this stimulus is short term, not long term and many of the eventual graduates will never see the billions of dollars that get pumped into education and instead get stuck with a degree that generates that equal to a GED.
The only way to prevent inefficiencies is infact to continue inefficiencies. The government will have to create an endless stimulus to make the economy work. In a completely unregulated and free market the price for goods and services will be 100% efficient at all times, teachers will get what they’re worth rather than what they’re guaranteed.
We have to consider the long term effects of stimulus. Think of the two biggest “short term” programs created during the New Deal. Yep that’s right, they’re still around.
let them fail and let the economy find its bottom. putting good money after bad only extends the timeframe for the inevitable.